Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nickel Industries Ltd (NICMF, Financial) reported a world-class safety record with a lost time injury frequency rate of 0.182 per million work hours.
- The company maintained the highest MSCI ESG rating for an Indonesia-based mining and metals company.
- Nickel Industries Ltd (NICMF) achieved a significant increase in EBITDA from mine operations, up almost 50% from $26 million to $39.1 million.
- The company declared an interim dividend of AUD0.025 per share, fully funded from 100% of conduit foreign income.
- Nickel Industries Ltd (NICMF) increased its equity interest in the ENC HPAL project to 44%, with only 11% remaining to be acquired.
Negative Points
- The company faced delays in issuing mining licenses, impacting sales for the first two months of the year.
- Exceptionally high rainfall in the second quarter affected mining operations and ore sales.
- There was a decrease in sales by about 9.5% and a decrease in EBITDA from RKEF operations.
- The weighted average contract price for nickel declined by 27%, from $15,476 in the first half of 2023 to $11,290 in the first half of 2024.
- The company reported an increase in interest expenses due to loans, affecting profit after tax.
Q & A Highlights
Q: The questions around the dividend, really positive surprise for me to see that dividend increase. Can you just give us a bit more background, perhaps, on the thinking behind that lift in the dividend?
A: (Christopher Shepherd, CFO) The dividend is up on the first half of last year but consistent with our final dividend in February. We revised our dividend policy to base it on free cash flows, with a guidance range of 30% to 60%. This dividend is slightly above at 65%, but when adjusting for exceptional items, it aligns with our guidance. This reflects our positive outlook for the next 6 to 12 months and the expected boost from ENC commissioning early next year.
Q: Just one on the share buyback, which was previously announced, the $100 million buyback. Just wondering what the status of that is and how that fits into the capital management framework.
A: (Christopher Shepherd, CFO) We couldn't act on the share buyback initially due to waiting for FIRB approval. Subsequent quarters were below expectations due to abnormal factors. We also announced the Sampala acquisition, balancing capital returns to shareholders with company requirements. While the buyback is not off the table, we are cautious given current cash flows and will monitor the situation.
Q: The margins from the HPAL production are strong. How is that impacting the consideration of a sell-down in the Excelsior Nickel Cobalt project's interest?
A: (Justin Werner, Managing Director) We are progressing with interested parties, some of which have submitted nonbinding offers and are moving into thorough due diligence. We are also in dialogue with groups around offtake of MHP cathode and sulphate. Any sell-down would be by Tsingshan state, not Nickel Industries, as we will remain at 55%.
Q: You mentioned ore pricing is attracting some good premiums. Can you run us through some of the factors driving that?
A: (Justin Werner, Managing Director) The crackdown on RKAB licenses and significant rainfall have reduced ore availability, leading to a short squeeze in the market. This highlights the advantage of NIC being fully integrated from mining to processing. With the Sampala acquisition, we will be 100% self-sufficient in ore for the next 40 to 50 years.
Q: Can you give us more on the recovering NPI price? Is it demand-led, or is it due to supply correction?
A: (Justin Werner, Managing Director) It's a bit of both. There's a supply correction and higher costs affecting producers globally. Additionally, European stainless steel producers are now purchasing nickel pig iron due to cost benefits. Despite sluggish conditions in China, stainless steel growth looks robust, and conversion of RKEF lines from nickel pig iron to nickel matte has also reduced NPI supply.
Q: Regarding the Sampala acquisition, was it a competitive process? Did you initiate proceedings?
A: (Justin Werner, Managing Director) Thankfully, it wasn't a competitive process. It was done in partnership with our long-term local partner. The acquisition price is very attractive, and we have deferred payments allowing us to use funds for exploration and mine development. This opportunity was available due to our strong relationship with our local partner.
Q: Could you give us an idea on the Sampala acquisition funding plan?
A: (Justin Werner, Managing Director) We have a three-month due diligence period before a commitment fee, followed by an 18-month exploration program. The final payment is based on exploration results and is more than 18 months away. We plan to start mining by the end of next year, potentially funding the acquisition from existing mining operation cash flows.
Q: How many independent directors do you have onboard?
A: (Justin Werner, Managing Director) We currently have two independent directors, including Ms. Emma Hall.
Q: Can you confirm that the haulage road for the Sampala acquisition is not an issue?
A: (Justin Werner, Managing Director) The haul road will go 22 kilometers from our project into Bintang Delapan, using 34 kilometers of existing haul road. This plan ensures there are no issues with the haulage road.
Q: Could you provide some directional guidance on where you see costs, considering current coal and ore prices?
A: (Justin Werner, Managing Director) Costs have come down from the first half of '23 to '24. We expect a small increase due to ore supply issues, but higher NPI pricing is preserving margins. We are also seeing significant margin improvement at our mining operation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
